Is it Time To Convert To A ROTH IRA?

June 25th, 2013 // 4:41 pm @

Do you know you don’t pay income tax on any earnings on a Roth IRA when they’re withdrawn if the Roth IRA has been in force for five years and you are 59 1/2 or older?

Talk to your Horace Mann representative to see if now may be the time for you to consider converting some or all of your eligible retirement plans to a Roth IRA.

What does it mean to convert to a Roth IRA?

Simply put, converting to a Roth IRA means taking money that is currently in a tax-deferred retirement plan and putting it into a Roth IRA, which is not a tax-deferred retirement plan.

Is there a benefit to converting to a Roth IRA?

In addition to the potential for income-tax-free earnings mentioned previously – unlike a traditional IRA – there isn’t an IRS-required minimum distribution at age 70 1/2.

How does a converison to a Roth IRA impact my taxes?

Because you are moving money from a tax-deferred plan to one that is not tax-deferred, you will be required to pay taxes on earnings and pretax contributions that you convert instead of deferring that tax payment until you withdraw the money.

What type of tax-deferred plans can I convert from?

Yon can do a full or partial conversion from a traditional IRA to a Roth IRA. And, if you have a qualifying event, you may convert from another tax-deferred retirement plan such as a 403(b), 457(b) or a 401(k).

Should I convert to a Roth IRA?

Depending on your exact situation, the benefits may vary. Here are scenarios that may help bring to light some of the more common benefits:

You may be in a lower tax bracket now than you will be at retirement, meaning you’ll pay taxes at a lower rate by doing it now.
By paying the income taxes on the money now, your assets could be passed on to heirs income tax free.
You may do a partial conversion, meaning only move a portion of your tax-deferred money into a Roth IRA and “split” your tax burden. Another way of saying it: pay some now – on the amount converted; pay some later – on the amount remaining in the tax-deferred retirement plan.
If you believe that income tax rates are going to increase over time, you may want to convert before tax rates increase.

If I’m thinking about converting, is there a potential “down side” I need to consider?

You’ll want to have answers to the following questions first:

Do you have the ability to pay the income taxes due on the conversion amount?
Will converting push you into a higher tax bracket?
If you are or will be receiving Social Security, will a conversion cause some of your Social Security Benefit to be taxable?
Will you need access to the converted funds in the next five years?
Will your age have any impact on your conversion? Specifically, tax implications may be different for those older than 59 1/2 than they are for those younger than 59 1/2.

You should consult a tax professional for advice on these and other possible questions.

I’m ready to talk about converting to a Roth IRA. What do I do now?

Ask your Horace Mann representative about a Roth IRA underwritten by Horace Mann Life Insurance Company.

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